The Global Economic Impact of Private Equity Report 2008 - World ...

enter into a period of due diligence. A slowdown in sales ofwinter clothing first increased doubts about the takeover bidmaterialising, however, on 13 February 2004, Singh putforward a 348p per share (£699 million valuation) proposalto bring the business back under private control (see Exhibit1 and Exhibit 2 for the development of New Look’s shareprice prior to the proposal). On 16 March 2004, more than99% of investors voted to accept the offer (only Fidelitylodged a no vote). 13 New Look joined Debenhams, Selfridgesand Hamleys as a private retailer.A Private New Look: 2004–2007New Look set off on its transformation as soon as thepublic‐to‐private transaction was closed. The agendaincluded three main initiatives: building a new distributioncentre and reorganizing the company’s logistics, adding newstores in the UK and shifting over to the larger store formatextending a men’s and children’s wear line while alsofocusing the women’s line more closely on fashion offerings,and expanding internationally. In addition, the managementteam was strengthened and, within the next two years, thecompany’s capital structure was changed.Corporate Governance: A Public versus Private New LookPost‐buyout, both the executive and non‐executive boardswere changed. Wrigley, the COO and main advocator ofthe new vision for New Look, was installed as CEO. Hebrought several new members to the management board,including Paul Marchant as managing director for BuyingMerchandising and Design, and Michael Lemmer asinternational director. Singh also took on a more hands‐onrole as managing director, commercial and executivemember of the board. These changes were necessary, asone private equity investor noted: “The new managementteam changed the direction of New Look and changed thepace at which it was managed. The change in themanagement team made the growth story happen.”The board initially consisted of four additional non‐executivemembers, two from each private equity firm. The two boardmembers from Apax Partners were Alex Fortescue (headof Retail and Consumer Sector in Europe) and MirkoMeyer‐Schönherr. When Meyer‐Schönherr left Apax Partners,Matthew Brockman, previously a board observer, becamenon‐executive board member. Martin Clarke (head ofConsumer Sector) and Leanne Buckham were the Permiraboard members. Both investment partners were committedto continuity on the board through the deal and up to exit.“We do not change board members in the life cycle of acompany,” one partner said. “We believe that it is all aboutthe relationship with the management and it is important tohave consistency over time.”Fortescue was chairman of the board until RichardLapthorne, non‐executive director and chairman of Cable& Wireless, was brought in by the private equity investors.If New Look went back to the public markets the teamwanted someone with experience in managing a publiccompany chairing the board. They felt they had alreadycovered retail experience sufficiently with the other boardmembers and, therefore, wanted to have someone withpublic market experience.The management team saw the company had benefited fromhaving been publicly listed as it had disciplined management inbecoming more professional in their corporate governance andreporting. Many of the changes due to increased informationrequirements by public investors were still kept post‐buyoutand highly valued by the management team.The corporate governance as well as strategicdecision‐making processes in New Look still changedsubstantially in other respects, due to the differentshareholder structure post‐buyout, also leading to changesin the board. All three parties – the management team, Singhand Apax Partners/Permira – had the expectation of a closerelationship with each other, with the private equity investorsfulfilling the role of a more active investor compared toinvestors on public markets. Due to this closer relationship,both the investors as well as the management were willingto take more risk with their decisions and to follow throughwith the envisioned initiatives for the transformation process.“New Look doubled the rate of investments,” Fortescuerecalled. “They were willing to take more risk in exchange forlonger term success. We were willing to take more risks aswell, given our relationship with New Look was closer thanit would have been for investors on the public market.”The three parties today agree that their expectations weremet and they all evaluate the collaboration as highly positive.The private equity partners monitored the business activitiesclosely and supported the strategic decisions made by themanagement team. They had detailed discussions on keystrategic decisions that had to be made in board meetings.Apax Partners/Permira did not impact day‐to‐day operationsbut had a vital role in making high level strategic decisions.“Before the buyout, public investors were mainly concernedabout how well New Look performed financially. After thebuyout, the primary debate was on what would be the rightstrategy going forward, so the board was more a powerhouse focussing on strategy rather than financials,”Fortescue said. A new monitoring system for operatingindicators was put in place and used to monitor thecompany more closely.A New Distribution Centre In July 2004, the companyannounced it would make a £400 million investment in a newdistribution centre in Newcastle‐under‐Lyme, which openedin 2005. This larger distribution centre in a more centrallocation made a great deal of sense from the perspective ofmid‐ and long‐term performance. However, as Alastair Miller,current CFO of New Look, recalled: “If we had still beenpublic at that time, Wrigley and I would have spent mostof our time in road shows around the City explaining to13Susie Mesure, “Fidelity refuses to back Singh’s pounds 700m buyout of New Look chain,” The Independent, 16 March 2004.106 Case studies: New LookThe Global Economic Impact of Private Equity Report 2008